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Maintaining A Sunny Disposition

It was an eventful week in the markets, and investors chose to look on the bright side of things as a fiscal cliff compromise was reached in the US and UK retailers posted impressive holiday numbers

Alanna Petroff 4 January, 2013 | 4:17PM

Rodney Hobson is away this week, but he will be back next week with a new column for January 11. Morningstar journalist Alanna Petroff has taken over his column, "The Week", in the interim. To read Rodney's latest work, check out his article "Stock Ideas for your Stocking".

An Eventful Week

It was certainly an eventful week in the markets, with the new year ushering in a watered-down resolution to the US fiscal cliff. Instead of resolving all the issues related to the fiscal cliff, politicians and policymakers 'kicked the can down the road' a bit more and opted to deal with some key issues in the next few months.

International markets responded to the fiscal cliff compromise by posting huge relief rallies around the world. However, this came at the same time that the US officially hit its debt ceiling, meaning it must stop issuing new debt. The country is now using "extraordinary measures" to ensure the government can pay its bills on time and will not default. All eyes remain fixed on the US to see how it can resolve its current debt ceiling problems and remaining fiscal cliff issues over the next few months.

At home, the FTSE 100 rang in the new year by breaking through the 6,000 mark on the first day of trading in 2013. This is the first time since July 2011 that the blue-chip index closed above 6,000 points.

Rallying Retailers

UK retailers began posting promising holiday numbers this week. In particular, shares in Next (NXT) surged ahead by 2.7% on Thursday after the company issued a better-than-expected fourth quarter trading statement. The retailer reported that fourth quarter sales growth was in line with its previous expectations, but cost cutting measures helped boost overall profitability. Therefore, it forecast that its profit for the fiscal year will be at the top end of its previous estimates.

Meanwhile, John Lewis also announced a jump in December sales, fuelled by strong in-store and online sales. Sales during the five weeks leading up to December 29, 2012 were 15% higher compared to the same period a year ago. Perhaps most notably, John Lewis reported that online sales during that five week period were 44% higher compared to last year. "Johnlewis.com now accounts for a quarter of the total John Lewis business," stated John Lewis in its trading statement.

US Non-Farm Payrolls

New US job figures that were released on Friday also helped calm investors' nerves. The numbers show that non-farm payroll employment rose by 155,000 in December, which was slightly ahead of expectations. The unemployment rate remained unchanged at 7.8%. This unemployment rate suggests that the Federal Reserve is unlikely to switch off its quantitative easing programme since it previously stated that the goal was to have an unemployment rate of 6.5%.

January Rally Bodes Well for The Rest of 2013

With markets rallying at the beginning of January, some are wondering if this bodes well for the rest of the year.

"The data does show that markets have risen in January in a majority of the years from 1984 to 2012, and further overall gains for the year are stronger when January was positive," stated IG analyst Chris Beauchamp in a recent 'Perspectives' article.

For further information and analysis of the "January effect," read Beauchamp's "Sell in May, Buy in January?".

Market Performance: December 31 – January 4

FTSE 100 Index: 2.78%
FTSE 250 Index: 2.71%
FTSE All Share: 2.57%
FTSE Small Cap: 2.56%
FTSE AIM 100: 1.93%
FTSE Fledgling: 1.93%

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author Alanna Petroff

Alanna Petroff  is a financial journalist with Morningstar UK.